Strike deal clears way for Norwegian Air's expansion plans

Agreement limits employees' bargaining power: Analysts

By Stine Jacobsen and Balazs Koranyi / Reuters

03/12/2015|labour-reporter.com|Last Updated: 03/12/2015

OSLO (Reuters) — Norwegian Air's battle with striking pilots cost it millions of dollars — but it may view that as a price worth paying as it preserved a successful expansion strategy that defies Scandinavian labour doctrine.

Europe's third-biggest budget airline has grown rapidly over the past decade, with its fleet increasing more than eight-fold. Faced with a Norwegian labour landscape of high wages, generous benefits and powerful unions, it has instead based some of its crew and jets in cheaper countries like Spain and Thailand.

The 11-day strike that ended this week shone a spotlight on a growing competitiveness problem in Norway, with pilots seeking a collective agreement with the carrier's parent entity, saying they wanted to prevent the company replacing them with lower-cost workers from overseas.

Norwegian Air saw off the crisis with more modest concessions — creating subsidiaries that would give Scandinavian pilots job security for nearly three years, but no collective agreement with the parent company.

The deal, described by analysts as a victory for the firm, clears the way for it to push ahead with expansion plans, which are largely focused outside the Nordics. Its sights are not only set on Spain and Asia but also new destinations — and bases for crew and jets — in places like South Africa, Brazil or India.

The strike may have cost Norwegian Air around 500 million crowns ($61 million), analysts say, and provided pilots some job security, it also limited employees' bargaining power, particularly for future crew hired outside Scandinavia.

"Chief Executive Bjoern Kjos is a clever man and sees that the airlines doing well in Europe also keep the employees away from influence," Sydbank analyst Jacob Pedersen said.

The airline's conduct during the strike also challenged the Scandinavian labour model. It kept flying, using rented planes and crew, prompting rare criticism from Swedish Prime Minister Stefan Lofven, who said it was "completely miserable to use strike-breakers".

HIGH WAGES

Norway's wages are among the highest in Europe and about 20 percent higher than in neighbouring Sweden, according to Eurostat. Labour costs are up around 50 per cent since 2005, more than six times the rate of growth in Germany.

Norwegian Air is faced with staff costs that equal about 16 per cent of its revenue — compared with a proportion of around 8 per cent at rival Ryanair and just over 5 per cent at Wizz Air.

"A Spanish cabin attendant costs just 25 per cent of a Norwegian worker and with a 50 per cent jobless rate among youth in Spain, any worker who gets a job in the cabin will be lucky," said Professor Espen Andersen, an aviation expert at the Norwegian Business School.

"So this deal (with pilots) has a much bigger implication for the cabin crew," Andersen added.

As well as basing staff in cheaper countries — routes to Spain are regularly serviced by Spanish crew rather than Scandinavian workers — the carrier has sought to cut costs by hiring some long-haul workers in Asia through recruitment agencies, rather than by directly employing them.

"The economic consequences for employees being transferred to recruitment agencies are dramatic," Eli Moen, an aviation expert said. "You only get paid for the time you work, you lose control over own working hours and you don't have a right to pay when you're sick or on vacation."

SUCCESS STORIES

Norwegian Air has been among the country's biggest success stories over the past decade.

Starting off as a regional carrier, it took on state-backed SAS before moving into even bigger markets, including the long-haul segment where it now flies London to New York, one of the most competitive routes in the world.

But like many companies, it has had to contend with the Norwegian oil industry's decade-long boom, which pushed up costs and entrenched Norway's welfare model.

The World Economic Forum rates Norway as the 11th most competitive country but it does not rank in the top half when it comes to wage flexibility, hiring and firing practices, or its relation of pay to productivity.

With the oil sector seen contracting after a steep drop in oil prices, economic growth will slow sharply and unemployment is expected to rise, albeit from a very low 3 per cent rate.

Competitiveness has become such a precarious issue that unions even failed to sway public opinion in a traditionally union-friendly country with a poll by daily paper VG on Wednesday showing that 49 per cent of people sympathised with the airline in the dispute versus 26 per cent for the unions.

"The key (to success) has been that we've had higher productivity growth than others," Prime Minister Erna Solberg said this week. "It's dropped off, so we're now on par with the rest of Europe, which is not enough if we remain one of the most expensive countries."